Holiday Spending Falls Short of Expectations

December 26, 2006byJCK Magazine

Visa USA, the credit card company, said yesterday that it would lower its forecast for holiday spending, The New York Times reports. Based on purchases by credit and debit card holders, Visa said sales rose 6.5 percent in November and December, compared with the same period last year, down from its initial forecast of a 7.5 percent gain.

The company’s downward revision could have broad implications for the nation’s merchants, who count on purchases during the holiday season for nearly half of their business, the Times reports. For consumers, it will probably translate into even deeper discounts over the next week, as they begin redeeming millions of gift cards.

Industry analysts said that, after a strong, discount-induced start the day after Thanksgiving, consumer spending slowed in December and never fully recovered, according to the Times. A soft housing market and high fuel prices pinched consumer spending, while unseasonably warm temperatures damped sales of cold-weather clothing from New York to Chicago.

The lackluster performance, well below the 8.3 percent increase in 2005, came despite respectable last-minute sales over the weekend.

ShopperTrak RCT, which measures purchases at 45,000 mall-based stores, said spending rose 22.5 percent on Friday and Saturday, compared with the same period last year, hitting $16.3 billion. According to NPD Group, 40 percent of Americans had started shopping by Thanksgiving weekend, a big increase over the prior holiday season.

ShopperTrak also supported this early shopping theory, saying consumers spend more on the day after Thanksgiving, known as Black Friday, than on any day leading up to Christmas—a reversal from previous years, when the Saturday before Christmas was the biggest shopping day of the year. Visa USA said that from Dec. 1 to Dec. 24, the cost of the average purchase dropped by 1 percent. When customers did splurge, it was on electronics, appliances and home furnishings — which emerged, to Visa’s surprise, as the single biggest area of growth this holiday season.

Data from Visa is considered a reliable gauge of the economy because $17 out of every $100 is spent on its 500 million cards. Visa’s holiday forecast includes spending on gasoline, grocery stores and restaurants.